Types of mortgages differ and the types can be confusing. Each type should be taken into consideration when deciding how you finance your mortgage. If you are a first time homebuyer finding the type of mortgage that is right for you may take lots of time and patience. Don't rush into a mortgage application of any type for a mortgage until you are completely certain of how that type of mortgage will benefit you and your particular situation in the long run.

The first distinction to make is between a fixed rate mortgage type and an adjustable rate mortgage (ARM). Oftentimes a fixed rate mortgage sounds desirable because there is no chance of the rates will go up. While true, the downfall can also be that you will be stuck with a higher rate if the rate of interest declines over the ten, fifteen, twenty, thirty or even forty years of your loan. If you choose a fixed rate mortgage type, you also need be aware of whether you are willing to refinance down the road if better mortgage rates hit the mortgage market.

Of course, the concern with ARM mortgages is that since your interest rate is of the variable type, the rate of interest could go up. This is definitely a concern because the rates of interest stand a good chance of increasing following record lows. Most often with an adjustable rate type of mortgage, there will be a time limit included like 3/1 or 5/1. This means that the ARM will stay at a fixed rate of mortgage interest for three years or five years and then be able to change. Who knows where the market will be in three or five years? Different borrowers have different reasons for preferring either a fixed rate or adjustable rate type of mortgage; it really is your choice to make based on your finances.

Another possibility that is similar to the ARM type mortgage is a balloon mortgage. ARMs and balloon mortgages are types that can work well for short-term home loans such as bridge loans. Often balloon mortgages are offered for a short period of time, 5 or 6 years, and at the end of that term the borrower will have to pay off the remaining balance with a new loan or a very large payment from another source, such as an inheritance settlement.

Another decision about mortgage types you will have to take into consideration with types of mortgages is how much can you afford to pay as a down payment on any type of loan. If you are a first time homebuyer, or someone who has not saved up towards a home, you may want to consider a 100% conventional type loan. This is a type of loan where you are given 100% of the cost of the home you want to purchase. Certain requirements will have to be met such as private mortgage insurance (PMI) for this type of loan.

In this situation where you don’t have much to put down on a home, you may also be offered an 80/20 mortgage type by your lender. Some lenders believe this type of loan is better than one large 100% conventional loan because it is actually taking out one large first mortgage loan and one smaller second mortgage. The 20% loan would incur a higher interest rate than the 80% loan, but many lenders believe you can get a better rate with the 80% of the first type of loan than if you attempt for a 100% type of mortgage.

A final important decision you need to make when considering different types of mortgages is how will you pay. First time homebuyers may be stuck with the impression that they pay their loan monthly, but there is also the option to pay for some types of loans bi-monthly or bi-weekly. The advantage of this type is often mentioned with the bi-weekly payment is that you get in one extra payment a year, since there are 26 weeks in a year, you will be making the equivalent of 13 monthly payments, instead of 12 monthly payment normal to this type of loan. A disadvantage to the bi-weekly type of loan is that you will have to make sure you can afford to pay equal portions of the loan during the month. Many lenders also say that this type of payment plan helps in the long run with interest charges.

There are still many other types of mortgages to take into consideration when making your decisions about purchasing a home. Depending on where you are employed or if you are a first time homebuyer or a military veteran, there are other possible loan choices. Be sure to ask your lender to explain in detail a variety of choices before you choose one of the many types of mortgages. A loan will stay with you for a long period of time; choose wisely!